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States’ Unemployment Compensation Trust Funds Could Run Out in Mere Weeks

April 9, 2020

Jared Walczak

Jared Walczak

Six states, which collectively account for over one-third of the U.S. population, are currently in a position to pay out fewer than 10 weeks of the unemployment compensation claims that have already come in since the start of the COVID-19 pandemic—including those they’ve already begun to pay out. California is in the worst shape, with only about 26 days’ worth of funding in its unemployment compensation trust fund. Overall, only six states would be able to pay out benefits for a year or more based on current unemployment insurance (UI) benefit claims levels.

The U.S. Department of Labor assesses the health of state UI funds with several measures. One is the Reserve Ratio, which looks at the trust fund balance as a percentage of a state’s total annual wages. Minimum adequate solvency entering a recession is calculated by dividing the Reserve Ratio by what is called the Average Benefit Cost Rate, which represents the average of the three highest rates of benefits the state had to pay out (as a percentage of state wages) over the past 20 years. If this yields a solvency level of 1.0 or greater, the state is deemed to have adequate UI funding to weather a recession.

It is possible to take states’ reported solvency levels at the start of the year, along with claims data for each state’s own worst three years, and match those against the most recent initial and continuing claims data to obtain an estimate of how many weeks of benefits a state could pay out based on those who have applied for or are currently receiving unemployment insurance benefits.

If anything, this estimate is generous, as it only takes into account claims filed through April 4 (due to the timing of data releases) and does not adjust for the degree to which these states’ funds have already been drawn down over the past two weeks.

When states exhaust their trust funds, they must look to other sources of funding, either within their own state budgets or through loans from the federal government, which must ultimately be paid back—in some cases with interest.

The 31 states with solvency levels of 1.0 or higher may borrow without interest, at least initially; states with lower solvency levels will incur interest payments. Eventually, should states take too long to repay these loans, technically called Title XII advances, in-state employers will face higher federal unemployment insurance taxes to compensate for their state’s indebtedness.

The federal government, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is providing federal funding to incentivize states to end one-week waiting periods, providing an additional $600 a week to each state unemployment insurance beneficiary, and offering extended benefits once state benefits run out—but states must still come up with the funding for regular benefits, and unfortunately, many are woefully unprepared to do so.

How Many Weeks of Unemployment Benefits Can States’ Trust Funds Cover?

Based on 2020 fund solvency levels and initial and continuing claims as of April 4, 2020

State

Weeks

Alabama

20

Alaska

40

Arizona

20

Arkansas

33

California

4

Colorado

27

Connecticut

10

Delaware

14

District of Columbia

14

Florida

90

Georgia

11

Hawaii

21

Idaho

34

Illinois

11

Indiana

14

Iowa

21

Kansas

30

Kentucky

7

Louisiana

19

Maine

24

Maryland

16

Massachusetts

6

Michigan

16

Minnesota

13

Mississippi

62

Missouri

19

Montana

47

Nebraska

26

Nevada

21

New Hampshire

10

New Jersey

13

New Mexico

24

New York

5

North Carolina

29

North Dakota

14

Ohio

6

Oklahoma

33

Oregon

65

Pennsylvania

11

Rhode Island

13

South Carolina

27

South Dakota

86

Tennessee

16

Texas

6

Utah

73

Vermont

45

Virginia

13

Washington

15

West Virginia

21

Wisconsin

20

Wyoming

321

Sources: U.S. Department of Labor; Tax Foundation calculations.

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The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.